Will this be the end of General Motors? Bondholders have rejected a debt exchange offer from GM, which expired at midnight last night. The United States’ biggest automaker has failed to persuade enough creditors to ingest their losses and is now approaching their deadline that the Obama administration has set for them–June 1, which is next Monday. This leaves GM the rest of the week and the weekend to finish restructuring for a possible miracle or resort to filing for Chapter 11 bankruptcy, which is more than likely to happen.
One thing is for sure: GM’s uncertainty over its finances has hurt sales of their cars, as consumers worry about matters such as warranty protection. Would you purchase your own car from a company that is nearly bankrupt? For many people, this bankruptcy issue does not affect their personal interest, as the case shows that Chrysler’s sales have been holding up well even though they had recently filed for bankruptcy.
Does the news of GM dampen our optimistic attitude about the economy and its possible recovery by this year? More than 90% of economists predicted that the recession will end this year, acknowledging that the recovery will be bumpy and slow. Nevertheless, this news still may have a significant impact on consumer confidence, although there has been some positive reading in that consumer confidence has been improving lately. However the reality is that the economy is still very weak, which is also stated by Alan Gayle, senior investment strategist at RidgeWorth Capital Management.
